How BLS calculates the Unemployment Rate
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How BLS calculates the Unemployment Rate
USING BLS DATA POSTED JANUARY 7, 2011
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United States population: 312 million.
To quantify the extent of the problem of unemployment, we start with the civilian, non-institutionalized, off-the-farm population (16 and older) of 238.9 million. Then, surveying by phone, we ask a series of questions to arrive at the unemployment rate.
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1. Are you currently employed?
A. Yes.
B. Yes, but only part time.
A + B = Employed = 139.2 million.
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No = 238.9 – 139.2No = 238.9 – 139.2 = 99.7 million.
Are all these people actually unemployed?
1. Are you currently employed?
A. Yes.
B. Yes, but only part time.
C. No.
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2. If “No,” are you actively looking?
A. Yes.
Yes = Unemployed = 14.5 million.
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2. If “No,” are you actively looking?
A. Yes.
B. No.
No = 99.7 – 14.5 = 85.2 million.
These people are not in the labor force.
No = not working; not looking
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Looking
Working + Looking
The Unemployment Rate = Unemployed
Employed + Unemployed
Unemployed
Labor ForceUnemployed
Labor Force
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The Unemployment Rate = Unemployed
Employed + Unemployed
Unemployed
Labor Force
Unemployment Rate = 14.5/ (139.2 + 14.5)
Unemployment Rate = 14.5 / 153.7
Unemployment Rate = 0.094 = 9.4 percent
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To those not employed and not looking:
3. Why aren’t you looking for a job?
A. I don’t want a job.
B. I’m discouraged—I can’t find one.
“Discouraged Workers” = 1.3 million.
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The Unemployment Rate (Discouraged Worker included)
Unemployed plus Discouraged Worker
Labor Force plus Discouraged Worker
= (14.5 + 1.3) / (153.7 + 1.3)
The U+DW Rate = 0.102 = 10.2 percent
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What is the current Unemployment Rate?
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9.4%This is the unemployment rate for December of 2010, as reported by the BLS on Friday, January 7, 2011.
For later reports, see the UPDATE at the end of this show and/or check the BLS website.
Click here for an update.
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LFPR = 153.7 million / 238.9 million
LFPR = 0.643 = 64.3 percent
Labor Force
Population (16 and older)
The Labor Force Participation Rate
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CATEGORIES OF UNEMPLOYMENT:
frictional (still looking)
Not in the Labor Force
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plus structural (a mismatch)
CATEGORIES OF UNEMPLOYMENT:
frictional (still looking)
If this typewriter repairman loseshis job, he’ll bestructurally unemployed!
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Macroeconomists refer to this 5%–6% band as the natural rate of unemployment. That is, it is perfectly natural in a market economy for the workforce to experience unemployment in this range.
Note that the natural rate of unemployment, like the normal levels of inventory in other markets, is consistent with labor-market equilibrium.
N
Supply
Demand
Market for LaborN
Supply
Demand
W
Skilled Labor
Structural Unemployment
W
N
Supply
Demand
W
N
Supply
Demand
W
N
Supply
Demand
W
N
Supply
Demand
W
N
Supply
Demand
W
Unskilled Labor
Industrial Labor Agricultural Labor
Western-States Labor Plains-States Labor
In a healthy economy, frictionally unemployed workers and structurally unemployed workers make up five-to-six percent of the workforce.
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NOTE: The economy’s workforce (or labor force) includes employed workers and unemployed workers and constitutes about half of the US population.
NOTE: The unemployment rate is the ratio of the unemployed workers to the labor force. In the U.S., the ratio is 5%–6% when the economy is in good macroeconomic health.
NOTE: The ratio of the labor force to the adult population (16 years old and older and not institutionalized) is called the labor-force participation rate. In the U.S., this ratio is about 65%.
NN
Supply
Demand
Market for Labor
W
Adult population (16 years old and older) minus military personnel minus the institutionalized citizenry
Employed workers
Frictionally and structurally unemployed workers
Not in the labor force
W
Employment and Unemployment In a Healthy Market Economy
NOTE:
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Cyclical unemployment occurs when there is an overall reduction in the demand for labor (a reduction not warranted by some change in preferences or in overall resource availabilities).
NOTE: Frictional and structural unemployment make no explicit showing in the analytical reckoning.
NOTE: The amount of cyclical unemployment (currently 3.4% or 3.9%) makes an exaggerated appearance in the analytical reckoning.
NOTE: The unemployment rate reported by the BLS includes frictional, structural, and cyclical unemployment.
Adult population (16 years old and older)
N
Supply
Demand
Adult population (16 years old and older) minus military personnel minus the institutionalized
Employed workers
Frictionally and structurally unemployed workers
Not in the labor force
W
Cyclical Unemployment In a Depressed Market Economy
Employed workers
Cyclically unemployed workers
NOTE:
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CATEGORIES OF UNEMPLOYMENT:
frictional (still looking)
plus structural (a mismatch)
= THE NATURAL RATE = 5%-6%
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THE RESIDUAL CATEGORY:
Measured Rate of Unemployment
minus the Natural Rate
= CYCLICAL UNEMPLOYMENT
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The level of unemployment consistent with sustainable prosperity--i.e., the natural rate of unemployment--has long been believed to be in the range of
A. 2 to 3 percent.
B. 3 to 4 percent.
C. 4 to 5 percent.
D. 5 to 6 percent.
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Ferris Beuller graduated from college during the Bush recession. He spent 1990 looking in vain for reasonable employment. Totally discouraged, he spent 1991 playing Minesweeper on his girlfriend’s computer. The Bureau of Labor Statistics would classify Mr. Beuller (in 1991) as
A. self-employed.
B. institutionally unemployed.
C. a discouraged worker.
D. structurally unemployed.
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6%
5%
REPRESSED OR
DEPRESSED ECONOMY
OVERHEATED ECONOMY
5.5%
NBER’s Call: End of Expansion
NBER’s Call: End of Recession Beginning of Recovery (June 2009)
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T H E N A T U R A L R A T E O F U N E M P L O Y M E N T
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What is the source of the dramatic gyrations around full employment?
Are they inherent in the nature of market economies?
Or are they perverse consequences of ill-conceived or politically motivated macroeconomic policy?
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T H E N A T U R A L R A T E O F U N E M P L O Y M E N T
UPDATE
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THE EMPLOYMENT SITUATION JANUARY 2011
The unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000), the U.S. Bureau of Labor Statistics reported today.
Employment rose in manufacturing and in retail trade but was down in construction and in transportation and warehousing. Employment in most other major industries changed little over the month.
THE EMPLOYMENT SITUATION JANUARY 2011
The unemployment rate (9.0 percent) declined by 0.4 percentage point for the second month in a row.
The number of unemployed persons decreased by about 600,000 in January to 13.9 million, while the labor force was unchanged.
(Based on data adjusted for updated population controls.)
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